Last Friday, gold prices hit their highest level since September 2012, at $1,762 and reaching record highs in many other currencies. Prices in Europe reached 1,633 euros and 1,458 British pounds, as well as 1,716 Swiss francs, breaking their previous highs.
Contracts for gold futures in Tokyo rose 1.7% to 6,084 yen per gram, the highest since the Tokyo Commodity Exchange started trading in 1982. On the physical market, spot gold in Tokyo reached 6712 yen per gram, when Japan’s consumption taxes are included. China’s gold market, the world’s largest consumer market, also hit a record high of 399 yuan per gram.
Gold’s rise is amazing in that Japan and Europe are deep in a recession with their stock markets tanking, and the U.S. is just entering a recession, with most other major asset classes falling – except gold.
Part of the reason is that the Japanese yen and euro offer negative interest rates, and the U.S. dollar’s short-term Treasury rates are so close to zero that there is no meaningful interest return to compete with gold now.
As a reflection of this global gold demand, gold-backed ETF funds raised their holdings for the 16th straight day Friday, according to Bloomberg. Both the SPDR Gold Trust (GLD) and iShares gold ETF (IAU) recorded their 8th straight week of growth, paralleling the stock market’s eight weeks of recovery.
These funds must add physical gold to reflect the increased demand of investors, so the world’s largest gold ETF, the SPDR fund, had to add 1,113 metric tons of gold (35,783,000 Troy ounces), a 25% increase in their core holdings, in the first 4-1/2 months of the year. Meanwhile, the iShares ETF had to add 434 metric tons (almost 14 million ounces), a 20% increase of their core holdings, so far in 2020.
Every quarter, hedge fund managers are required to file their holdings – including gold holdings – with the Securities & Exchange Commission (SEC) at the midway point of the next quarter. The latest filing was due last Friday, May 15.
According to Bloomberg reports on May 18, there is indication that hedge fund luminaries including Paul Singer, David Einhorn and Crispin Odey are among those bullish on gold, according to recent letters to investors. So are large asset managers like Blackrock Inc. and Newton Investment Management. Bloomberg reported on their filings and letters to investors:
Crispen Odey of the Odey European Fund wrote of his holdings at the end of March: “Gold is the only escape from global monetizing.” Gold futures were the third largest position held by his fund at the time.
Paul Singer of Elliott Management Corp told his investors, “In recent months, gold has gone up in price to some degree, but we think that it is one of the most undervalued investable assets existing today.”
He argued that low interest rates, mine disruptions and “fanatical debasement of money by all of the world’s central banks” would lead gold to rise to “literally multiples of its current price.” (Literally, one multiple of $1,750 gold would be a doubling to $3,500. Two multiples would be to $5,250, and so forth…)
Turning to the expected inflation next year, David Einhorn’s Greenlight Capital argued in a letter to the fund’s investors that, “We expect policymakers to target and applaud mid-single digit inflation, which, combined with interest rate suppression, will be the only way to outgrow the mounting debts,”
Catherine Doyle at Newton Investment Management agreed: “It’s almost inevitable that there will be a fiscal tailwind for gold – when markets wake up to the scale of the stimulus.”
Even if hyper-inflation isn’t coming, Russ Koesterich, portfolio manager of the $20.5 billion BlackRock Global Allocation Fund, points to gold’s inverse relationship with real interest rates: When interest rates are low, adjusted for inflation, the opportunity cost of holding gold is low and real rates are negative now.
Wells Fargo Bank earlier this month issued a report on Real Assets, in which John LaForge, Wells Fargo’s Head of Real Asset Strategy opened with this headline: “Gold may test its all-time highs, adding, “Gold has a host of economic and market factors working in its favor, and we are increasingly confident that gold could test its all-time high of $1,900 this year.”
Wells Fargo has already upgraded its year-end 2020 gold target price three times this year and now sees this new all-time high above $1,900.
There’s also a now-famous prediction of Bank of America for $3,000 gold by the end of 2021, with their equally famous four-word response to the printing-press paper profusion: “Fed Can’t Print Gold.”
Mike Fuljenz is a member of the Newsmax Finance Brain Trust. He is also the editor of the NLG award winning Michael Fuljenz Metals Market Weekly Report. Discover more by Clicking Here Now.
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